You are looking at a one-year loan of $10,000. The interest rate is quoted as 12.5 percent

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You are looking at a one-year loan of $10,000. The interest rate is quoted as 12.5 percent plus two points. A point on a loan is 1 percent (one percentage point) of the loan amount. Quotes similar to this one are very common with home mortgages. The interest rate quotation in this example requires the borrower to pay two points to the lender up front and repay the loan later with 12.5 percent interest. What rate would you actually be paying here?

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Corporate Finance Core Principles and Applications

ISBN: 978-1259289903

5th edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

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